Starting a new business? Get 40% off our accountancy services for 3 months! 😎

x

Making Tax Digital is already a reality for VAT-registered businesses, with the next phase of rollout looming on the horizon for self-employed individuals and landlords who submit Self Assessment tax returns. Its replacement, MTD Income Tax Self Assessment (ITSA for short), is expected to launch in April 2026.

It was originally due to come into effect in 2024, but rollout has been extended by 2 years, so you have time to prepare! We’ll look at what MTD ITSA is and what it means for you.

What is Making Tax Digital (MTD)?

In a nutshell, MTD is a tax administration strategy brought in by the government to make tax more efficient. With this change, individuals and businesses will be required to:

The first stage, MTD for VAT, has already rolled out – with all VAT-registered businesses now keeping digital records, as well as using MTD software to send their VAT returns.

What are the advantages of MTD?

One of the main purposes of Making Tax Digital is to help individuals and businesses get their taxes right. Businesses across the UK lose out on millions of pounds because completing confusing tax return forms means there’s a high chance of making mistakes. The move over to digital record keeping sets out to help them:

What is Making Tax Digital for Income Tax Self Assessment?

MTD ITSA is the forthcoming phase of the Making Tax Digital schedule, which will take over the current Self Assessment system. To comply, you’ll keep digital records using software that works with Making Tax Digital for Income Tax. The software must allow you to:

 
Once MTD ITSA is in place, you’ll need to submit quarterly statements, an EOPS (End of Period Statement), and a Final Declaration (which replaces the current Self Assessment tax return).

You can find more out about MTD-compatible software and how to submit quarterly updates on the GOV website.

Who will be affected by MTD ITSA and when does it start?

MTD for Income Tax Self Assessment will affect the way millions of individuals and businesses do their taxes, but in the early stages it depends on whether self-employed individuals and landlords meet the registration threshold:

Your turnover (also known as gross income) is the total before any expenses or taxes are deducted. If you’re both a landlord and a sole trader, it’ll apply to the income you make from both.

If you find yourself below this threshold, you can continue to send Self Assessment tax returns as normal if you choose to, until any other changes are made.

Some businesses are already partaking in the new changes, and you can check if you’re able to volunteer through your software provider.

What about partnerships?

At the moment, there is no confirmed date for partnerships and MTD ITSA, but it’s expected that they will eventually need to report their finances in this way.

Is anyone exempt from MTD ITSA?

You can apply for an exemption against using Making Tax Digital for Income Tax if:

How do I prepare myself for MTD ITSA?

There are some steps you can take now to help you prepare.

Check if you need to register

You might not need to register for MTD rules straight away, so it’s well worth taking a moment to figure out if MTD ITSA applies to you, or is likely to once the registration period rolls around.

Check the total amount of income you receive as a sole trader (adding together the total turnover if you have multiple sole trader businesses) or money you earn as a landlord. If that total exceeds £50,000 then you’ll need to register for MTD from April 2026. The registration threshold reduces to £30,000 from April 2027.

For example,

If your annual turnover is £20,000 for one business, £25,000 for another, and you also earn £6,000 from rental income, your total income is £51,000 so you’ll need to register before April 2026.

Adjust your accounting periods if you have more than one business

To make submitting your quarterly updates more efficient, ensure your accounting periods align so you can do it all at once. This can be trickier than it sounds, so discuss the best way to do this with your accountant!

Go digital as soon as possible

It’s much better to start now than be bogged down with heaps of admin! Look for cloud accounting software (like our very own Pandle!) that’s fully compliant with Making Tax Digital.

In the meantime, cloud-based software allows you to automate a lot of your bookkeeping processes, so it will make your life easier. If you have an accountant, chat with them about the software they’d recommend and what they’re going to do to help you through this process – you won’t be in this alone!

 
Need an accountant to prep you for Making Tax Digital? We’ve got you covered! Call our expert team on 020 3355 4047 or get an instant quote online.

About The Author

Rachael Johnston

A creative content writer specialising across business, finance and software topics. I have a love for all things writing, and creating engaging, easy to understand content that helps everyday people! Learn more about Rachael.

More posts by this author
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

Read more posts...

Staff Spotlight: Charlotte Hughes, Accounts Junior

This month we spoke to Charlotte Hughes, Accounts Junior at The Accountancy Partnership! Give an overview of the duties, functions and responsibilities…

Read More

Staff Spotlight: Rebecca Boyd, Accounts Junior

This month we spoke to Rebecca Boyd, Accounts Junior at The Accountancy Partnership! Give an overview of the duties, functions and responsibilities…

Read More

February 2024 Client of the Month: CHERESHNIVSKA

This month we spoke to Iryna, CEO and Founder of CHERESHNIVSKA!  CHERESHNIVSKA | Instagram | Facebook Hey Iryna! Tell us about your business CHERESHNIVSKA…

Read More
Back to Blog...

Confirm Transactions

The number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?

Yes, submit my quote
No, let me change it

Please contact our sales team if you’re unsure

VAT Returns

It is unlikely you will need this service, unless you are voluntarily registered for VAT.

Are you sure this is correct?

Yes, the business is VAT registered
No, let me change it

Call us on 020 3355 4047 if you’re not sure.

Bookkeeping

You will receive our bookkeeping software Pandle for free, as part of your package.

You can use this to complete your own bookkeeping, or we can provide a quote to complete your bookkeeping for you.

Please select and option below:

I will do my own bookkeeping
I want you to do my bookkeeping

Call us on 020 3355 4047 if you’re not sure.